Silver roars higher as short squeeze rocks London market

(Bloomberg)– Silver rose to its highest level in decades as a historic squeeze in London intensified, with a new price surge adding urgency to a global bullion hunt that could ease a mismatch between supply and demand.

Spot silver climbed 3.1% to nearly $52 an ounce, surpassing last week’s high, while gold topped $4,070 an ounce, building on a record run of eight weekly gains. Platinum and palladium also jumped, as market strains caused by growing investor demand begin to spread to other precious metals.

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Concerns about a lack of liquidity in London pushed silver closer to the 1980 record of $52.50 an ounce, set on a now-defunct contract on the Chicago Board of Trade. Benchmark prices in London have soared to almost unprecedented levels above New York, prompting some traders to book cargo slots on transatlantic flights for silver bullion – an expensive mode of transport usually reserved for gold – to take advantage of massive premiums in London.

Silver leasing rates – which represent the annualized cost of borrowing the metal on the London market – jumped to more than 30% on a one-month basis on Friday, creating exorbitant costs for those looking to roll over short positions. Gold and palladium leasing rates have also tightened, signaling growing pressure on London’s bullion reserves, following the rush to New York earlier this year to ship metal.

The silver market “is less liquid and about nine times smaller than that of gold, which amplifies price movements,” analysts at Goldman Sachs Group Inc wrote in a note. “Without an attempt by the central bank to anchor silver prices, even a temporary withdrawal of investment flows could trigger a disproportionate correction, as it would also dissipate the London tensions that have driven much of the recent recovery.”

The four major precious metals have surged 55% to 80% this year, part of a rally that has dominated commodity markets. Gold’s advance was supported by central bank purchases, increased holdings in exchange-traded funds and rate cuts by the Federal Reserve. Demand for safe-haven assets has also been boosted by recurring trade tensions between the United States and China, threats to the independence of the Fed and the shutdown of the US government.

China on Sunday urged Washington to end its tariff threats and return to negotiations, warning it would retaliate if the United States followed through with new measures. President Donald Trump – who last week discussed an additional 100% tariff on Chinese goods – struck a more conciliatory tone in his weekend remarks.

“Just as geopolitical and trade risks were diminishing the tailwinds for gold, we saw a surge in tensions between the U.S. and China,” said Kyle Rodda, an analyst at Capital.com. Despite both sides being open to negotiations, “trade volatility may remain silent but it never goes away. This is a very good thing for gold.”

Traders also remain nervous as the US administration’s so-called Section 232 investigation into critical minerals, which includes silver, as well as platinum and palladium, nears its conclusion. Fears that metals could be swept away by further levies have exacerbated market tensions, partly laying the groundwork for a silver squeeze after a significant reduction in freely available supplies in London.

Spot silver was up at $1.00 an ounce in London at 10:16 a.m. local time, while gold traded near a new record high of $4,079.89. Platinum and palladium both rose more than 3%.

The Bloomberg Dollar Spot Index was little changed, after gaining about 1% last week.

–With help from Yihui Xie and Preeti Soni.

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